Monday, October 30, 2006

In the October 30, 2006 article "GAO Chief Warns Economic Disaster Looms," Associated Press national writer Matt Crenson reports that the chief accountant for the U.S. government believes current fiscal policy is unsustainable.

AUSTIN, Texas (AP) -- David M. Walker sure talks like he's running for office. "This is about the future of our country, our kids and grandkids," the comptroller general of the United States warns a packed hall at Austin's historic Driskill Hotel. "We the people have to rise up to make sure things get changed."

But Walker doesn't want, or need, your vote this November. He already has a job as head of the Government Accountability Office, an investigative arm of Congress that audits and evaluates the performance of the federal government.

Basically, that makes Walker the nation's accountant-in-chief. And the accountant-in-chief's professional opinion is that the American public needs to tell Washington it's time to steer the nation off the path to financial ruin.

From the hustings and the airwaves this campaign season, America's political class can be heard debating Capitol Hill sex scandals, the wisdom of the war in Iraq and which party is tougher on terror. Democrats and Republicans talk of cutting taxes to make life easier for the American people.

What they don't talk about is a dirty little secret everyone in Washington knows, or at least should. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course, and will founder on the reefs of economic disaster if nothing is done to correct it.

There's a good reason politicians don't like to talk about the nation's long-term fiscal prospects. The subject is short on political theatrics and long on complicated economics, scary graphs and very big numbers. It reveals serious problems and offers no easy solutions. Anybody who wanted to deal with it seriously would have to talk about raising taxes and cutting benefits, nasty nostrums that might doom any candidate who prescribed them.

"There's no sexiness to it," laments Leita Hart-Fanta, an accountant who has just heard Walker's pitch. She suggests recruiting a trusted celebrity - maybe Oprah - to sell fiscal responsibility to the American people.

Walker doesn't want to make balancing the federal government's books sexy - he just wants to make it politically palatable. He has committed to touring the nation through the 2008 elections, talking to anybody who will listen about the fiscal black hole Washington has dug itself, the "demographic tsunami" that will come when the baby boom generation begins retiring and the recklessness of borrowing money from foreign lenders to pay for the operation of the U.S. government.

"He can speak forthrightly and independently because his job is not in jeopardy if he tells the truth," said Isabel V. Sawhill, a senior fellow in economic studies at the Brookings Institution.

Walker can talk in public about the nation's impending fiscal crisis because he has one of the most secure jobs in Washington. As comptroller general of the United States - basically, the government's chief accountant - he is serving a 15-year term that runs through 2013.

This year Walker has spoken to the Union League Club of Chicago and the Rotary Club of Atlanta, the Sons of the American Revolution and the World Future Society. But the backbone of his campaign has been the Fiscal Wake-up Tour, a traveling roadshow of economists and budget analysts who share Walker's concern for the nation's budgetary future.

"You can't solve a problem until the majority of the people believe you have a problem that needs to be solved," Walker says.

Polls suggest that Americans have only a vague sense of their government's long-term fiscal prospects. When pollsters ask Americans to name the most important problem facing America today - as a CBS News/New York Times poll of 1,131 Americans did in September - issues such as the war in Iraq, terrorism, jobs and the economy are most frequently mentioned. The deficit doesn't even crack the top 10.

Yet on the rare occasions that pollsters ask directly about the deficit, at least some people appear to recognize it as a problem. In a survey of 807 Americans last year by the Pew Center for the People and the Press, 42 percent of respondents said reducing the deficit should be a top priority; another 38 percent said it was important but a lower priority.

So the majority of the public appears to agree with Walker that the deficit is a serious problem, but only when they're made to think about it. Walker's challenge is to get people not just to think about it, but to pressure politicians to make the hard choices that are needed to keep the situation from spiraling out of control.

To show that the looming fiscal crisis is not a partisan issue, he brings along economists and budget analysts from across the political spectrum. In Austin, he's accompanied by Diane Lim Rogers, a liberal economist from the Brookings Institution, and Alison Acosta Fraser, director of the Roe Institute for Economic Policy Studies at the Heritage Foundation, a conservative think tank.

"We all agree on what the choices are and what the numbers are," Fraser says.

Their basic message is this: If the United States government conducts business as usual over the next few decades, a national debt that is already $8.5 trillion could reach $46 trillion or more, adjusted for inflation. That's almost as much as the total net worth of every person in America - Bill Gates, Warren Buffett and those Google guys included.

A hole that big could paralyze the U.S. economy; according to some projections, just the interest payments on a debt that big would be as much as all the taxes the government collects today.

And every year that nothing is done about it, Walker says, the problem grows by $2 trillion to $3 trillion.

People who remember Ross Perot's rants in the 1992 presidential election may think of the federal debt as a problem of the past. But it never really went away after Perot made it an issue, it only took a breather. The federal government actually produced a surplus for a few years during the 1990s, thanks to a booming economy and fiscal restraint imposed by laws that were passed early in the decade. And though the federal debt has grown in dollar terms since 2001, it hasn't grown dramatically relative to the size of the economy.

But that's about to change, thanks to the country's three big entitlement programs - Social Security, Medicaid and especially Medicare. Medicaid and Medicare have grown progressively more expensive as the cost of health care has dramatically outpaced inflation over the past 30 years, a trend that is expected to continue for at least another decade or two.

And with the first baby boomers becoming eligible for Social Security in 2008 and for Medicare in 2011, the expenses of those two programs are about to increase dramatically due to demographic pressures. People are also living longer, which makes any program that provides benefits to retirees more expensive.

Medicare already costs four times as much as it did in 1970, measured as a percentage of the nation's gross domestic product. It currently comprises 13 percent of federal spending; by 2030, the Congressional Budget Office projects it will consume nearly a quarter of the budget.

Economists Jagadeesh Gokhale of the American Enterprise Institute and Kent Smetters of the University of Pennsylvania have an even scarier way of looking at Medicare. Their method calculates the program's long-term fiscal shortfall - the annual difference between its dedicated revenues and costs - over time.

By 2030 they calculate Medicare will be about $5 trillion in the hole, measured in 2004 dollars. By 2080, the fiscal imbalance will have risen to $25 trillion. And when you project the gap out to an infinite time horizon, it reaches $60 trillion.

Medicare so dominates the nation's fiscal future that some economists believe health care reform, rather than budget measures, is the best way to attack the problem.

"Obviously health care is a mess," says Dean Baker, a liberal economist at the Center for Economic and Policy Research, a Washington think tank. "No one's been willing to touch it, but that's what I see as front and center."

Social Security is a much less serious problem. The program currently pays for itself with a 12.4 percent payroll tax, and even produces a surplus that the government raids every year to pay other bills. But Social Security will begin to run deficits during the next century, and ultimately would need an infusion of $8 trillion if the government planned to keep its promises to every beneficiary.

Calculations by Boston University economist Lawrence Kotlikoff indicate that closing those gaps - $8 trillion for Social Security, many times that for Medicare - and paying off the existing deficit would require either an immediate doubling of personal and corporate income taxes, a two-thirds cut in Social Security and Medicare benefits, or some combination of the two.

Why is America so fiscally unprepared for the next century? Like many of its citizens, the United States has spent the last few years racking up debt instead of saving for the future. Foreign lenders - primarily the central banks of China, Japan and other big U.S. trading partners - have been eager to lend the government money at low interest rates, making the current $8.5-trillion deficit about as painful as a big balance on a zero-percent credit card.

In her part of the fiscal wake-up tour presentation, Rogers tries to explain why that's a bad thing. For one thing, even when rates are low a bigger deficit means a greater portion of each tax dollar goes to interest payments rather than useful programs. And because foreigners now hold so much of the federal government's debt, those interest payments increasingly go overseas rather than to U.S. investors.More serious is the possibility that foreign lenders might lose their enthusiasm for lending money to the United States. Because treasury bills are sold at auction, that would mean paying higher interest rates in the future. And it wouldn't just be the government's problem. All interest rates would rise, making mortgages, car payments and student loans costlier, too.

A modest rise in interest rates wouldn't necessarily be a bad thing, Rogers said. America's consumers have as much of a borrowing problem as their government does, so higher rates could moderate overconsumption and encourage consumer saving. But a big jump in interest rates could cause economic catastrophe. Some economists even predict the government would resort to printing money to pay off its debt, a risky strategy that could lead to runaway inflation.

Macroeconomic meltdown is probably preventable, says Anjan Thakor, a professor of finance at Washington University in St. Louis. But to keep it at bay, he said, the government is essentially going to have to renegotiate some of the promises it has made to its citizens, probably by some combination of tax increases and benefit cuts.

But there's no way to avoid what Rogers considers the worst result of racking up a big deficit - the outrage of making our children and grandchildren repay the debts of their elders.

"It's an unfair burden for future generations," she says.

You'd think young people would be riled up over this issue, since they're the ones who will foot the bill when they're out in the working world. But students take more interest in issues like the Iraq war and gay marriage than the federal government's finances, says Emma Vernon, a member of the University of Texas Young Democrats.

"It's not something that can fire people up," she says.

The current political climate doesn't help. Washington tends to keep its fiscal house in better order when one party controls Congress and the other is in the White House, says Sawhill.

"It's kind of a paradoxical result. Your commonsense logic would tell you if one party is in control of everything they should be able to take action," Sawhill says.

But the last six years of Republican rule have produced tax cuts, record spending increases and a Medicare prescription drug plan that has been widely criticized as fiscally unsound. When President Clinton faced a Republican Congress during the 1990s, spending limits and other legislative tools helped produce a surplus.

So maybe a solution is at hand.

"We're likely to have at least partially divided government again," Sawhill said, referring to predictions that the Democrats will capture the House, and possibly the Senate, in next month's elections.

But Walker isn't optimistic that the government will be able to tackle its fiscal challenges so soon.

"Realistically what we hope to accomplish through the fiscal wake-up tour is ensure that any serious candidate for the presidency in 2008 will be forced to deal with the issue," he says. "The best we're going to get in the next couple of years is to slow the bleeding."

David M. Walker is a certified public accountant. He has a B.S. degree in accounting from Jacksonville University. His complete biography can be found on Wikipedia.

In 1776, when Thomas Jefferson wrote the Declaration of Independence, he listed the pursuit of happiness as an inalienable right, immediately after life and liberty. It is a little-known historical fact that Jefferson, John Adams and company also expected that the pursuit of happiness would someday include buying a Lexus and Hummer to share a three-car garage, a McMansion, a plasma television or three, and cosmetic surgery, from head to toe. With all that stuff, the Founding Fathers secretly theorized, Americans would be "really" happy.

It seems the Founding Fathers were wrong.

Not that the average American would want to trade places with folks in Darfur or Haiti or even Mexico, for it is truly hard to be happy when your children are starving. For the past half century, however, we in the United States have enjoyed a spasm of income growth, purchasing power and luxury unprecedented in human history, yet without the corresponding increase in feelings of content. Instead, for the past 50 years, we have lived on a happiness flatline, what prominent British economist Richard Layard calls a "plateau of happiness," a real and troubling disconnect between what we have and how we feel. (If it's any consolation, the Japanese are even less grateful, he says.)

It is that disconnect, that relative discontent, that has helped to inspire the recent groundswell of interest among social scientists, journalists and psychologists. Layard's criticalled acclaimed book, Happiness: Lessons From a New Science, was recently published in paperback, among the slew of titles on the topic to hit the bookstores in the past few years. (Another, Stumbling on Happiness, by Harvard psychologist Daniel Gilbert, has recently been inching its way up the bestseller lists.) "Positive Psychology" (the study of what makes people happy vs. what makes them depressed) is the hottest new trend in that field, while leading national journals have regularly weighed in on happiness and its associated conundrums.

Boiled down, the issues seem to be thus: Why haven’t we gotten happier as we’ve gotten richer? And if money can’t buy happiness, as our mothers always said, exactly where and how do we find it?

They are crucial questions, certainly, worthy of our finest minds, and they lead inevitably to, you’ll never guess – the Buddhist kingdom of Bhutan. We meet the Bhutanese midway through Layard’s book, an isolated Himalayan people whose king, in 1998, decided the country’s objective would be Gross National Happiness. A laudable thing all around. The problem is, the king allowed television into his country for the first time the very next year.

“And so the Bhutanese could see the usual mixture of football, violence, sexual betrayal, consumer advertising, wrestling and the like,” Layard writes. “They lapped it up, but the impact on their society provides a remarkable natural experiment in how technological change can affect attitudes and behavior … Quite soon everyone noticed a sharp increase in family breakup, crime and drug-taking.”

In recent years, the Bhutanese government has been trying to get television, or at least the most odious programs, banned from the country. Good luck with that. But the misfortune of the king and his people is truly a story for our time. In most any intelligent discussion of what’s wrong with our society; of what stands between us and our bliss, television takes a terrible beating.

For starters, there is the steady diet of violence and soulless sex, dishonesty, betrayal and intrigue – that electronic smorgasbord from which we and our children continuously feast. Not that violence and soulless sex don’t happen in real life, but not nearly as frequently as television would make it seem. And now the data are clear: The more television we watch, the more desensitized, violent and debased we become.

“I don’t think television does much good,” Layard said in a recent telephone interview from his office in London. “It sort of elevates the glamour and attachment to success, and a lot of the people who are successful on television are not that nice. And advertising makes you feel that you need things you don’t really need. We all know one of the secrets of happiness is to be satisfied with what you have. I have done some research in the United States that shows the longer you watch television, the less happy you are.”

One simple solution: less tube, of course. Layard also suggests a greater investment in the things that really do make us happy – family and friends, meaningful work that we enjoy, community involvement, less getting and more giving.

“I think there will probably be some sort of spiritual revival or a revival of a greater sense of solidarity with other people,” says Layard. “These things go in swings and roundabouts. This has been one of the most ferociously individualistic periods, and I think we’ll start to see some backlash against that. The fact that people are reading these books shows that they’re disenchanted with the idea that the pursuit of private gain is going to make everybody have an enjoyable and meaningful life.”

Bowling is a team sport

Or maybe bowling’s the problem. Or maybe not bowling, per se, but renting a pair of shoes and a ball, and then tossing gutter balls all by yourself. Or maybe … OK. Let’t back up.

Six years ago, Harvard government professor Robert Putnam published a book called Bowling Alone, which Putnam summarized in a recent Time magazine essay.

"I argued that the fabric of American communities has frayed badly since the mid-1960s," Putnam wrote. "I traced plummeting memberships in PTAs, unions and clubs of all sorts, long-term declines in blood donations, card games and charity; and drops of 40 to 60 percent in dinner parties, civic meetings, family suppers, picnics, and yes, league bowling."

Putman's alarming conclusions in Bowling Alone were met pretty much like Al Gore's warnings about global warming, with silence or skepticism. But then, just last month, the American Sociological Review published a study in which 1,467 Americans were asked to describe all the people with whom they had recently discussed important matters. In a similar 1984 survey, we listed just three such close friends. Twenty years later, according to the study, that number had dropped to two.

Putnam tries not to gloat but now says the debate about the depths of our social isolation is over. We're lonely as heck, and as a result, "our children fail to thrive. Crime rises. Politics coarsens. Generosity shrivels. Death comes sooner," he wrote.

Like Layard, Putnam says television is largely to blame for this state of affairs.

"Television is not all bad in terms of social connectedness," Putnam said in a recent interview. "Watching the news is good for civic health. But most Americans don't watch the news. They watch Friends instead of having friends. Entertainment television is lethal for social connection because we watch alone. It's not that we enjoy television so much. It's just that it's so easy. You don't need to coordinate. You don't need to call. Click, and it's there."

More culprits

But what about urban sprawl? Putnam says every 10 minutes of commuting time cuts social connection by 10 percent. What about our failure to account for the most drastic changes in the American Work force since the Industrial Revolution?

"Between 1960 and now, we've had a third of the American workers move from the kitchen to the office, but there's been no change at all in the structure of the workplace, in the way we design workdays and careers," Putnam said. "We're still operating with this Industrial Age image of how work and family are supposed to fit together. "We assume everybody works 9 to 5 and everybody has a wife at home, when almost no one has a wife at home. We need to make it possible for both men and women to reconcile their professional obligations with family and community obligations."

It would also help, Putnam says, if Americans finally take heed of our mothers.

"It's amazing what little effect material possessions have on happiness," Putnam says. "The data, the evidence, is hands-down. Money can buy you happiness, but not very much, and only if you're an Indian peasant. Nobody is going to be happier a year from now if they become a lot wealthier, but connections are very powerful. Family connections. Spouses. Friends."

Talk about a little-known historical fact.

This article also appeared in the July 30, 2006 edition of the Wisconsin State Journal.

After examining the Forbes Global Misery and Reforn Index, you now can look at all taxes at all levels of national and local government and total government spending, The Overall Tax Burden and Government Spending Table , which measures total tax burden in OECD countries as a percentage of gross domestic product, (“GDP”). This table uses the most recent official numbers available which are for 2004 and thus there is a time lag, but this gives us a good picture of what is happening. This Table is done to make sure that a reduction in the top marginal rate shown in the Misery & Reform Index is not lost through a change in the tax base, deductions or the progressiveness of rates or in the creation of new or hidden taxes at national, regional or local levels. This Table generally follows the Misery & Reform Index ranking with six of the top ten OECD countries in the Misery and Reform Index are also at the top of the Overall Tax Burden and Government Spending Table.

More specifically, this Table shows as does the Index that globally the tax bite dropped slightly from the prior year, with sixteen countries reducing total burden, six remaining constant and eight increasing tax burden. Despite this reduced overall taxation burden , it continues to remain in all of the countries above the levels of taxation of 1965 and only nine countries have decreased total taxation since1980 as a percentage of GDP. Of course, in absolute amounts, the government coffers have grown with their economies to historically unprecedented colossal amounts. The only surprise is there are not more dramatic tax revolutions as there have been historically. The confusing statements about the falling power and shrinking size of governments and the rising power of global corporations, at least in terms of what governments consume in taxes from the GDP of the country’s entrepreneurs and in absolute terms, is misplaced. Specifically, the nine exceptional countries, almost half now released from the burden of communism, that have decreased the amount of taxes in terms of the percentage of the GDP consumed by their government since 1980 are as follows: Belgium, Czech Republic, Hungary, Ireland, Japan, Netherlands, Poland, Slovakia and USA.

We also again include the Overall Government Spending results by each of the governments. Many governments are continuing the trend to reduce taxes, but the harder task of reducing spending is still to be accomplished. Only one-half of the countries reduced spending from the prior year. The solution to deficits is not to reverse the trend in tax reform, at least for those on the top of the Table and Index, but to control spending growth while the economic growth increase the absolute amount of tax revenue.

Comparing the Overall Tax Burden to the Overall Government Spending shows that all countries are spending more than they are taxing. This overall trend is not just a Keynesian cyclical exception. This difference in burden and spending is only partially covered by the increasing “budget deficit”. This difference is also partially covered by additional “revenues” that governments do not consider to be “taxes” including user fees and service charges, “profits” from government owned companies and monopolies and the sale of state assets, such as privatizations of state owned companies or sale of its real estate or its gold reserves. Thus the Overall Tax Burden is understated and hidden from taxpayers, but not from Forbes readers. Also note that the budget deficit that is covered by government borrowings require future taxes to repay the debt and currently service the interest payments (now among the top two or three expenditures of too many governments and these increased government borrowings also indirectly increase the interest rate paid the entrepreneur as an additional “tax”). The reality is the appearance of progress in tax burden in the analysis is partly masked and false due to government misreporting.

While the Misery & Reform Index charts the marginal tax cost on a growing business and its top executive, it is also important to look at the total taxes imposed by a country at all levels, national and local, as compared to its GDP to measure the overall burden.

Importantly, we also look in this table at Overall Government Spending at all levels of government, which in all cases is greater than the Overall Tax Burden. The resulting deficits are covered by debt, hidden taxes, profits from state owned monopolies and the privatization and sale of government assets. This allows the reader to be aware of the broader base of current and future total taxation issues. This is the latest official data from the OECD and is for 2004. It takes governments a year to count their colossal tax revenues and expenditures.

In the May 22, 2006 Forbes article "Tax Misery & Reform Index," Jack Anderson explains that the tax burden in the United States is low compared to most other countries in the world.

Asia continues to look attractive in our annual ranking of tax burden. And even China's bum score may be deceiving.

Our 2006 Tax Misery & Reform Index offers a global view of the top marginal rates of taxation--the ones that typically most affect a successful entrepreneur. The news is good as the rates generally continue to decrease around the world.

The Misery scores--a sum of six tax rates--are lower in 16 of the locations this year, with France decreasing the most (although still in the top position). There was no change in 28 locations, and only 8 increased Tax Misery (7 of them just slightly). Overall, the original European Union-15 and China have the highest levels of Tax Misery--China because of its extraordinary social security and pension rates. The lowest levels generally continue to be in the rest of Asia, the Middle East, Russia and the U.S. (Keep in mind that countries at the bottom of our chart are the most tax-friendly to entrepreneurs and wage earners, while those at the top are the harshest.)

China's "miserable" score comes with a big qualifier. Social taxes tend to have income caps that spare the highest earners, and special tax holidays for foreign investors and expatriates keep the "effective" rate of taxation (as opposed to the top "marginal" rate) closer to the other Asian countries. But a specific measurement of net take-home pay (after income and social taxes) for a top executive reveals that only one other Asian country, Japan, leaves the executive with less than China does. And the Chinese taxman's work is never done: A new levy on the 45 billion pairs of disposable wooden chopsticks used annually will push conservation as well as increase revenues.

Almost half of the countries on the bright side of global taxation are Asian, including Hong Kong and Taiwan. Singapore continues to lower levies, and Korea codified its new low 17% flat tax (but only for expatriates), which is less than half the top 39% local rate in the Misery Index. India remains at the low end, despite this year's five-point upturn. Japan, although reducing its Misery score, has been hardening its tax treatment of expatriates and remains, with China, the tax worry of the Asian region. Indeed, Japan is not likely to be improving its score in the short run, if expectations of higher consumption taxes to close a massive budget deficit prove out. The nation oughtn't take current glimmers of economic growth for granted.

Not surprisingly, eight of the top ten countries on our list are European. France, though still at the top of the Misery Index, also showed the most reform this year (with a reduction of eight points) by reducing taxes under besieged Prime Minister Dominique de Villepin. A top individual progressive tax rate of 40% is down from 48%. A high earner is now charged this on his incremental salary and investment income, as well as an 11% flat tax on all pay.

Germany, despite a record of reform since 2000, went substantially in the other direction this year. The reforms that were anticipated under former chancellor Gerhard Schröder were not realized. Instead, taxes were increased in 2006 by the new coalition government of Chancellor Angela Merkel. (Our index records planned tax moves, ahead of their full enactment--so we must adjust when implementation falls short.)

We show Germany from the perspective of Berlin--where state and local taxes are a significant factor. (Same in the U.S.--note the difference between New York and Texas.) A top-earning Berlin entrepreneur is now looking at 14 additional points of Misery.

As with China, you have to consider special provisions for multinationals and expatriates. Here France has also been making concessions, but elsewhere in Europe this flexibility is being limited. This only makes seemingly high-tax China, which gives the foreign direct investor a ten-year tax holiday, more of a magnet for international capital.

Jack Anderson is an international tax attorney in the U.S. and EU, and a member of the French bar, the U.S. Tax Court and the California and New York bars. He is also a CPA, M.B.A. and partner in an international law firm in Paris. E-mail: jack.anderson@wanadoo.fr

Thursday, March 30, 2006

WASHINGTON — As the Senate works on a bill to impose the broadest reforms on immigration in 20 years, the debate continues to percolate over the impact on the U.S. economy by the presence and contributions of illegal immigrants.

Messages are mixed on the strength of the American economy, and the role of immigration is one of the main arguments being made on both sides of the debate over whether to tighten the flow of illegal immigrants or to make it easier for them to enter the country to prop up low-paying industries.

Wednesday, the Senate began debate on immigration reform after the Judiciary Committee forwarded a bill Monday that would increase spending on border security as well as create a guest-worker program favored by pro-immigration groups and President Bush. The committee measure differs from a House bill sponsored by Rep. James Sensenbrenner, R-Wis., that does not give leniency to those already in the country illegally and would create further restrictions, including stiffer penalties on employers and the illegal aliens themselves.

Determining the impact of illegal workers on employment rates, GDP and health care costs, among other numbers, is tricky because of the nature of their being undocumented. Government and private industries can't track numbers ­­— productivity, purchasing patterns or wages, for instance — like they would for legal sectors of the economy, because the underground market is just that.

The limitation automatically puts those interested in the finding out the economic impact of illegals at a disadvantage.

"There's no simple answer. It's very complex," said Michele Waslin, director of immigration policy research for the immigrant friendly National Council of La Raza.

Waslin's group and others seeking to expand the rights of immigrants to the United States say based on their findings, the economic balance falls in favor of an immigrant-friendly society.

Waslin cites as supporting evidence employment rates among immigrants — 94 percent among undocumented male workers, according to the Pew Hispanic Center; Social Security Administration statistics — more than $500 billion in unclaimed revenues attributed to payments from illegal workers; and government spending on immigration enforcement activities — $4.9 billion in 2002, according to the Migration Policy Institute, up from $1 billion in 1985.

"We're spending more and more money with fewer results," Waslin said of border security spending.

Waslin added that the United States has for some time been shifting to a higher-tech, better-educated society that isn't producing janitors, farm workers and other low-wage, low-education employees, even though the demand for those positions is strong. Regardless of whether Americans want to do the jobs, they aren't, and the jobs still need to be filled, she said.

"Americans aren't going to take the jobs at the current wage and work conditions being offered," Waslin said.

But Jack Martin, special projects director for the Federation for American Immigration Reform, and others say the economic balance tilts negatively as a result of immigration.

According to a Pew Hispanic Center study released in March, illegal immigrants entered the country last year at an estimated rate of about 1,300 per day, and an estimated 11.5 million to 12 million illegals live inside the United States. Pew estimates that illegal immigrants account for nearly 5 percent of the U.S. labor force, or about 7.2 million workers.

Martin said with a calculated 500,000 illegals entering the borders each year, the U.S. economy, and the country as a whole, can't sustain itself. He cited growth rates published by the Census Bureau that put the country doubling in size in the next 70 years.

Citing a "fiscal drain" of billions of dollars in education and urgent health care, among other services, the country will be choked in traffic and sprawl. To give an example of the negative impact, Martin said he's looked at the costs of illegal immigration to education, health care and prison systems in the Southwest and California. Californians, for instance, are paying about $1,000 per household to cover the costs generated by supporting an illegal immigrant population, he said.

Immigration in its current form "distorts our economy and it's having significant effects on the way that our society will be in the in the future if we don't get control over it," Martin said.

That's not the picture offered by Brent Wilkes, executive director of the League of United Latin American Citizens, who said immigrants, legal and illegal, pay property and sales taxes, spend their money here and are helping to revitalize communities that were depressed 20 years ago.

Wilkes cites a study by University of California-Los Angeles professor Raul Hinojosa, which says the total economic contribution of illegal immigrants from what they produce and what they spend is about $800 billion. Losing that by cutting off the flow of immigrants entirely and sending back the ones who are here illegally would be a tremendous blow to the gross domestic product, he said.

"If you get rid of $800 billion in economic activity, that's a big hit on the U.S. economy," Wilkes said.

Martin countered that immigrants, legal and illegal, aren't spending as much money in the United States as their native-born counterparts would be. He cited widely distributed statistics that $15 billion or more is sent home to Mexico every year in the form of remittances, or cash and wire transfers to family members.

Martin said he's also fearful that the current wave of immigration is actually chipping away at the underpinnings of society, an expense that is incalculable in dollar terms.

Waving off any idea that he's against cultural intrusion — he said he's lived in Latin America and speaks multiple languages — Martin said he has seen signs of a growing class divide in the United States, signs that are more often associated with developing countries. For instance, gated communities, increased wage discrepancies and more barriers to class mobility.

"That's the sort of big picture-type trend that we have to be concerned about," Martin said

The small picture, too, is a concern, said Mark Krikorian, executive director of the Center for Immigration Studies. Although he concedes that definite benefits for some specific sectors of the economy come from the illegal workforce, the overall costs to American citizens outweighs the benefits of illegal immigration.

"There's no question that illegal immigration, that unskilled immigration of all kinds, is a losing proposition," Krikorian said.

Krikorian's group just released a study this week that says illegal immigration is most harming the unskilled sector of the labor force. Krikorian said it shows current U.S. immigration policy isn't looking out for its own citizens.

A study of Census Bureau data revealed that while U.S. unemployment is under 5 percent, unemployment among high school dropouts is 14 percent and among those with only a high school education is about 7 percent, he said.

Krikorian said that shows that despite the claims otherwise, for non-immigrants "there isn't full employment in the low-skilled labor market."

Krikorian said that until immigration policy changes, the problem boils down to a simple point — low-wage citizen workers are being crowded out of low-pay jobs by illegal immigrants.

Tuesday, February 28, 2006

The Ludwig von Mises Institute "was founded in 1982 as the research and educational center of classical liberalism, libertarian political theory, and the Austrian School of economics. It serves as the world's leading provider of educational materials, conferences, media, and literature in support of the tradition of thought represented by Ludwig von Mises and the school of thought he enlivened and carried forward during the 20th century, which has now blossomed into a massive international movement of students, professors, professionals, and people in all walks of life. It seeks a radical shift in the intellectual climate as the foundation for a renewal of the free and prosperous commonwealth."

Liberty and Economics - a 38-minute YouTube video from the Ludwig von MIses Institute that espouses the virtues of free markets and capitalism.

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Comments

I welcome comments. Please keep them civil, short and to the point. Obscene, profane, abusive and off topic comments will be deleted. Repeat offenders will be blocked. Thanks for taking part — and abiding by these simple rules.

The following information is provided to help you understand the biases that may be inherent in this blog.My primary U.S. economic policy concern is the fiscal irresponsibility of government.The Baby Boom generation, which I am part of, has spent the past 30 years accumulating massive public debt that will be passed to our children, grandchildren, and subsequent generations.I am not opposed to the reduction or elimination of any government spending program.Yet, politicians tend to call for reduced spending in general terms and fail to publicly declare specific cuts they would make.The primary cause of the massive U.S. public debt is revenue reductions (in the form of tax cuts) without similar decreases in government spending.

I am willing to consider the expansion and addition of government programs as well.I do not mind how much or little the government provides to society as long as it is paid for.I am willing to pay higher taxes for services deemed worthy, whether they be national defense, homeland security, or income assistance to those less fortunate than I.And I am certainly willing to pay less in taxes or to deposit any government check I receive.My generation, the Baby Boomers, has been very good at cutting taxes and increasing the size of government, regardless of which political party is in power.This is a prescription for financial chaos that remains a horrible legacy for future generations.

About Me

I am a professor of economics at Jacksonville University, where I teach courses in introductory economics, comparative economic development, and globalization. I use this blog to keep in touch with my current and former students. Teachers and students at other schools, as well as others interested in economic issues, are welcome to use this resource.